Expert Analysis of Today's Market

• The dollar initially fell on Friday on an unexpected decline in US non-farm payrolls but later rose against most major currencies on better-than-expected ISM manufacturing data. The greenback failed to penetrate record lows against the euro and dollar index. Sterling was particularly weak on increased speculation the Bank of England will lower interest rates. The yen and Swiss franc fell as US stocks rose, increasing demand for carry trades. The dollar block currencies rose against the dollar.


• After trading within a few pips of the all-time high of 1.4966 on weak job data, the EUR/USD reversed and traded at the 1.48-handle support late Friday. This may indicate a topping formation. The pair has not reacted well to a 125 basis-point rate cut in a two-week period and weaker-than-expected US growth and employment data. There are supports at the 1.48 and 1.46 handles.

Financial and Economic News and Comments

US & Canada

• US non-farm payrolls unexpectedly fell 17,000 in January, the first drop in more than four years, the Labor Department said. Gains in health care, retail trade and leisure offset declines in manufacturing, construction, financial services and government employment. December payrolls were revised up by 64,000 to show an 82,000 rise. However, November job growth was revised down by almost half, to 60,000. The unemployment rate fell to 4.9% in January from 5.0% in December. Average hourly earnings rose 0.2% m/m and 3.7% y/y in January. Overall the data showed weak payrolls and raising unemployment, indicating the Fed is right in lowering rates aggressively to avoid a recession.

• US construction spending fell a larger-than-expected 1.1% m/m in December to an annual rate of $1.140 trillion, the Commerce Department said. The decline came from residential (-2.8%) and public spending (- 1.5%) as business structural investment rose 1.3%.

• The ISM index of manufacturing activity unexpectedly rose to 50.7 in January from 48.4 in December, the Institute for Supply Management reported. Inflation pressures increased as the prices index rose to 76.0 in January from 68.0 in December. The new orders index rose to 49.5 from 46.9 while the production index rose to 55.2 from 48.6.

Europe

• European manufacturing PMI expanded more than expected to 52.8 in January, above the preliminary estimate of 52.6 from January 4. The sub-index measuring new orders rose to 51.7 from 51.4 and the output gauge increased to 54.0 in January from the initial 53.9. German PMI rose to 54.4 in January from 53.3 in December.


• UK manufacturing PMI fell to 50.6 in January from 52.4 in December, the Institute of Purchasing and Supply said. The gauge of new orders fell to 49.7. The measure of output prices rose to 57.9, the highest since records began in 1999.


• The National Institute of Economic and Social Research today cut its prediction for UK economic expansion to 2.0% from its 2.2% forecast in October. The inflation rate will reach 2.6%, instead of staying close to the Bank of England’s 2% target as previously expected, NIESR said.

Asia-Pacific

• China’s purchasing managers’ index fell to 53.0 in January from 55.3 in December, the National Bureau of Statistics said. The output index dropped to 56.1 in January from 59.5 in December while the new orders index declined to 55.2 from 59.6. The export orders index fell to 49.0 from 54.3.

FX Strategy Update